WILLS, TRUSTS, AND MEDICAID

A will alone is not enough. However, a will in a trust is ideal (The Pour Over Will). A document that governs the distribution of assets among beneficiaries and designated heirs after your death is called a will. A legal institution that provides for the transfer of assets, to a trustee from the owner, called the grantor is called a trust.

Revocable Trust

Both before and after the grantor’s death trusts can be created to serve a variety of purposes. A revocable trust can be created by grantors while they are alive, which they can modify, add to, or terminate at any time. A revocable trust trustee may act as a grantor.

PROS OF THE REVOCABLE TRUST

Avoidance of inheritance

Because the trust itself does not die with its creator, assets held in a trust avoid inheritance, known in legal terms as a “tustmaker” or “grantor.” According to the grantor’s own terms, the trust survives the founder’s death and may transfer the asset to any person designated by the grantor in the trust formation documents.

Privacy

Everything that is done in the Florida court system is open to the public, with very few exceptions. If someone knows where to look then anything that goes to court can be found. But the Trust content is private. You can set up a trust to quietly pass their wealth on to the next generation (kids, as the beneficiary or the trust) if you are looking to protect your loved ones from prying eyes.

Flexibility

You create, finance, and manage revocable trust yourself as a trustee while you’re alive, you can change the way it works and the assets you own over time. This entails that you still have access to your funds when you need them. Own nothing, but control everything.

CONS OF A REVOCABLE TRUST

 

Start-up and Ongoing Costs 

A Trust is more expensive than a will because the paperwork required to form a revocable trust is more complicated. This entails that a revocable trust is a more costly asset planning option, although in many cases a higher down payment will save your family a much greater amount of cost and fees when you die.

Funding a trust

It typically takes more money and time (up to three times as much, at least initially) to fund and set up a revocable trust than simply writing down a will. Most trusts are funded with a permanent life insurance policy such as a whole life policy or an IUL- Index Universal Life policy.

Irrevocable Trust

An “irrevocable” trust cannot be changed once it is created. This type of trust is structured so that the income is paid to you for life and the principal cannot be used in your favor or that of your spouse.

PROS OF IRREVOCABLE TRUST

Any taxable asset that is placed in an irrevocable trust will most likely reduce your tax liability and make it a great option for those with substantial assets. Own nothing, but control everything.

 

Distribution & Taxes

To eliminate any mishandling at the time of your passing, you can set the conditions under which the trust should be distributed. You can take advantage of property tax rules by giving tax-free gifts if your trust gives property to your children (children being the beneficiaries).

 

Judgments

An important benefit for highly controversial lawyers, doctors, and other businesses is that trust protects your assets from professional compensation claims (such as lawsuits).

CONS OF IRREVOCABLE TRUST

Inflexible structure & ownership

When you are an irrevocable trustee you have no leeway as compared to a revocable trust. You lose ownership of your asset once you place them in an irrevocable trust. You may receive income from your trust depending on the structure of your trust.

 

Unexpected change

Family relationships, Priorities, finances, and goals are just a few items on the list of unexpected life changes. And you don’t have the luxury of predicting exactly how your future will unfold.

 

Medicaid & Trust

Trusts can be used to protect assets and qualify for Medicaid. Medicaid is a government-funded healthcare program, that provides financial assistance to individuals with low income and limited resources (anyone earning $2000 or less monthly). One important aspect of Medicaid eligibility is the “5-year look back” period. The time frame during which Medicaid looks back at an individual’s financial transactions to determine if they have transferred assets for less than fair market value in an effort to become eligible for Medicaid.

5-year look-back

If an individual has transferred assets for less than fair market value within the 5-year look-back period, they may be subject to a Medicaid penalty period during which they are not eligible for Medicaid coverage. The length of the penalty period is determined by the amount of assets transferred and the cost of care in the area where the individual resides.

Trust protection from Medicaid

Using trusts as a means to protect assets and qualify for Medicaid can be a complex process and it is important to seek the advice of a qualified attorney or financial planner to ensure that the trust is properly structured and meets Medicaid’s requirements. It is also important to be aware of the 5-year look-back period and to carefully document all financial transactions to avoid any potential Medicaid penalties.

 

Conclusion

In conclusion, trusts can be a useful tool for protecting assets and qualifying for Medicaid. It is important to understand the rules and regulations surrounding their use, particularly the 5-year look-back period. In order to avoid any potential penalties and ensure successful Medicaid eligibility see the advice of a qualified attorney or financial planner. Contact us today, at Wealth Financial Services & Products at 754-202-2300 or visit our Get a Quote, to set up a consultation. You can also email us at info@wealthfinancialservice.com and we will be happy to start a conversation on how we can best serve your needs. We’re here to help!